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Misperception explains favorite-longshot bias: evidence from the Finnish and Swedish harness horse race markets

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  • Matti Koivuranta

    (University of Oulu)

  • Marko Korhonen

    (University of Oulu)

Abstract

We use a unique data set from Finnish and Swedish horse race betting markets to explain the favorite-longshot bias. The data set includes a complete set of odds for exotic markets. We use the exotic market odds in conjunction with the win market odds and find convincing support for the misperceptions explanation of the favorite-longshot bias rather than the risk-love explanation. Furthermore, our data provide evidence of a specific type of failure to reduce compound lotteries. Namely, it seems that bettors do not assess the exotic market events as simple lotteries but instead consider the race for the first place and the race for the second place in a sequential form.

Suggested Citation

  • Matti Koivuranta & Marko Korhonen, 2019. "Misperception explains favorite-longshot bias: evidence from the Finnish and Swedish harness horse race markets," Empirical Economics, Springer, vol. 57(6), pages 2149-2160, December.
    • Handle: RePEc:spr:empeco:v:57:y:2019:i:6:d:10.1007_s00181-018-1538-0
    DOI: 10.1007/s00181-018-1538-0
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    References listed on IDEAS

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    Cited by:

    1. Robin Maximilian Stetzka & Stefan Winter, 2023. "How rational is gambling?," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1432-1488, September.
    2. Koivuranta, Matti & Korhonen, Marko, 2021. "Changes in risk preferences: Evidence from Swedish harness horse racing data," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 16-32.

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    More about this item

    Keywords

    Betting; Favorite-longshot bias; Misperception;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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